Recession-Proofing Your Construction Business | CDP Inc.

Article written by Tom Scalisi on the Viewpoint blog.

Let’s not dispute whether or not a recession is coming—the ifs and buts about it aren’t worth the time. What we know, however, is that recessions usually come along every 5 to 10 years. They’re hardly the Halley’s Comet of economic events, so it makes sense to prepare for a recession regardless of whether one is lurking around the corner in the near future or not.

Recessions happen. They’re part of the economic cycle. Recession-proofing your business just ensures you’re prepared for the next one, regardless of when it happens. This guide will explain some of the best ways to shore up your bottom line in the event of a recession.

Why You Need to Recession-Proof Your Business

Recession-proofing your construction business isn’t doomsday prepping or shuttling your executive board into a bunker. It’s a solid business practice that ensures your company is structurally sound any time the broader economy takes a few steps back. With current and recent U.S. GDP readings, we're far from that—but there are always proprietary models and economists that showcase the "indicators" one could be coming sooner rather than later.

Recessions typically last 12 to 24 months, and may or may not include a bear market in stocks. Only the National Bureau of Economic Research (NBER) can call a recession—and only in hindsight. Prior to the short-lived Covid recession in Q2 of 2020, The Great Recession was our most recent "normal" recession, beginning at the end of 2007 and continuing through mid-2009 (though the impacts on the construction industry lasted longer). Many industries were impacted, but construction especially took a brutal blow. The housing market collapsed, demand for new construction projects flattened, and finding financing became a needle-in-a-very-crowded-haystack situation.

A nearly 10-year-old report from the NAHB stated residential builders alone dropped 50% from 2007 to 2012.

Housing still hasn't fully recovered, despite the ongoing demand and persistent supply shortages that have underlined the current growth in home prices. And while the impact of The Great Recession is an outlier—its was wider-reaching than most other recessions, from a historical perspective—it’s still a cautionary tale from recent history, and there are still reverberations throughout the industry. Companies need to protect their bottom lines and not forget that the right combination of circumstances can become a tinderbox that can burn unprepared construction companies to the ground. Preparing for these situations is the best way to survive them.

7 Keys to Recession-Proofing Your Business

Many companies think that the only practical response to a recession is cutting costs and praying for the best. But rather than the reactive approach, prepare for a potential recession and minimize its impact on your business with the following tips.